Hybrid Financing in Swiss and International Tax Law

Transcription

1 Hybrid Financing in Swiss and International Tax Law University of Neuchatel 26 th March 2014 Peter Hongler

2 Table of Content Overview Distinction between Equity and Debt Tax Planning Regulatory Aspects Further Cases Participation Exemption Junk bond Hidden Equity Distinction between Equity and Debt Notional Interest Deduction

3 Overview Instruments Between Equity and Debt Tax Planning Instrument Mezzanine Financing 3

4 Elements of a Financing Instrument debt assets hybrids equity 4

5 Elements of a Financing Instrument Duration (perpetual/ short) Remuneration Amount (fixed / profit participating) Redemption Amount (fixed / profit participating) Voting Rights (yes / no) Subordination (yes/no) 5

6 Distinction between Equity and Debt Formal approach (Swiss Accounting Law [OR]) Equity Shares Participation rights ( Partizipationsscheine ) Joissance rights? Substance over form Repayment obligation? Entrepreneurs risk? Profit participating? 6

7 Distinction between Equity and Debt Substance over form (e.g. IFRS) Equity: Shares Participation rights ( Partizipationsscheine ) Joissance rights? Substance over form Repayment obligation? Entrepreneurs risk? Profit participating? 7

8 Examples Profit Participating Bonds Mandatory Convertible Bond Contingent Convertible Bond Jouissance Rights 8

9 Examples Profit-Participating-Loan Loan granted for 50 years 8% interest is paid if SubCo distributes dividends Subordinated Various structures possible: Interest rate depending on profit Accrued interests ParentCo SubCo loan 9

10 Examples Convertible Bond Loan from 1 st June 2008 granted until December 31 st, 2012 CHF (Potential) conversion into equity on December 1 st, shares 1% interest Subordinated InvestCo ITCo loan 10

11 Examples Mandatory Convertible Bond Loan granted for 2 years CHF per note Mandatory conversion on the 1. January 2013 Fixed conversion ratio (10 shares per note) 9% interest rate Subordinated InvCo Bank A loan 11

12 Examples Mandatory Convertible Bond Bloomberg, March 2 nd

13 Tax Planning Inbound Situations Outbound Situations

14 Inbound Investment Qualification as dividend Participation exemption ParentCo 5% loan NLD/US Interest deduction SubCo CH 14

15 Outbound Investment Participation exemption ParentCo CH 5% interest Interest deduction SubCo US No tax planning instrument since participation exemption does not apply if interest deduction abroad (article 70 [2] FTA) 15

16 Regulatory Aspects Basel III requirements

17 Basel III Requirements ParentCo CH 5% interest SubCo US 17

18 New Withholding Tax Regulation 18

19 Further Cases Participation Exemption Regulatory Aspect Write offs Third Party Interest Rate Swiss Thin Cap Rules

20 Participation Exemption December, 1 st 2011: shareholder s meeting December, 5 th 2011: payment of additional share capital December, 7 th 2011: application filed at the register of commerce January, 5 th, 2012 additional information required June, 20 th, 2012: formal registration of the capital increase ParentCo SubCo CH GER When is the one year holding period according to article 70(4) FTA fulfilled? 20

21 Participation Exemption Convertible bond Strike price CHF 100 No early redemption date Issue Date June 1 st, 2012 Conversion Date January 1 st, 2013 Holding period of one year? June 1 st, 2013, or January 1 st, 2014? ParentCo SubCo CH GER 21

22 Hidden Equity

23 Hidden Equity Art. 65 FTA 23

24 Hidden Equity Art. 65 FTA Balance Sheet Positions Max Debt Cash 100% Receivables 85% Participations 70% Other shares 50% [ ] [ ] (Other) real estate 80% IP 70% 24

25 Notional Interest Deduction

26 NID on Surplus Equity Corporate tax reform III NID only on surplus equity? Calculation of core equity? Relevant interest rate? Market rate? 26

27 NID on Surplus Equity Core Equity Ratio Core Equity Assets CHF % CHF Liquid assets 25'000'000 0% 0 Trade accounts receivable 1'500'000 15% 225'000 Other receivables 100'000 15% 15'000 Stocks 0 15% 0 Other currentassets 0 15% 0 Domestic and foreign bonds denominated in CHF 0 10% 0 Foreign bonds denominated in foreign currency 0 20% 0 Listed bhares (domestic and foreign companies) 1'200' % 1'200'000 Other shares 0 100% 0 Participations 60'000' % 60'000'000 Loans granted to group companies 120'000'000 15% 18'000'000 Loans granted to third parties 0 15% 0 Factory equipment 800'000 50% 400'000 Factory property 0 30% 0 Villas, holiday homes, and other non operating assets 0 100% 0 Building land 0 30% 0 Other properties 0 20% 0 Incorporation, capital increase, and organizational costs 100' % 100'000 Other intangible assets 100'000 30% 30'000 Total 208'800' % 79'970'000 A Equity 100'000'000 B Core equity 79'970'000 A Surplus capital 20'030'000 C=B A Notional interest rate 3% D Notional interest deduction basic model of interest adjusted income tax 3'000'000 E=D*B Notional interest deduction interest adjusted income tax on surplus capital 600'900 F=D*C 27

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